Return Differences between Trading and Non-Trading Hours: Like Night and Day

Abstract

We use transaction-level data and decompose the US equity premium into day (open to close) and night (close to open) returns. We document the striking result that the US equity premium over the last decade is solely due to overnight returns; the returns during the night are strongly positive, and returns during the day are close to zero and sometimes negative. This day and night effect holds for individual stocks, equity indexes, and futures contracts on equity indexes and is robust across the NYSE and Nasdaq exchanges. Night returns are consistently higher than day returns across days of the week, days of the month, and months of the year. The effect is driven in part by high opening prices which subsequently decline in the first hour of trading.

Keywords: anomalies, non-trading, market closure, weekend effect

JEL Classification: G1, G12, G14